Annual reports need to provide more in-depth strategy discussion, backed by relevant operational KPIs so that investors can take a longer-term view of corporate health and performance – according to KPMG International’s second annual Survey of Business Reporting.
Companies are focusing their performance reporting, strategic discussion and risk assessments on short-term financial objectives, resulting in significant gaps in the information reported to investors.
According to KPMG’s second annual Survey of Business Reporting, an evaluation of 270 annual reports from larger public companies in 16 countries, the short-term focus of corporate reporting is readily apparent. The survey highlights that, of the reports surveyed:
There is no indication that reports need to be longer – with current reports averaging 204 pages in length. Annual reports could, however, be better focused. On average, the financial statements made up 42 percent of each report surveyed, while just 15 percent of each report provided information on performance and prospects, and 14 percent on business and strategy.
“Financial information is not the only data that matters to investors,” says Mark Vaessen, Global Head of IFRS at KPMG International. “When evaluating a company, investors also need to be able to assess the health of a business, its growth potential and the long-term sustainability of its earnings.”
While some companies are beginning to report on the most significant elements of business performance outside of financial results, there is room for improvement.
According to the KPMG report, corporate reporting needs to find a better balance between reporting of short-term indicators, and metrics that highlight long-term viability and business health of a company.
“At KPMG, we’re committed to having an open dialogue with all stakeholders, including investors, on how to improve the usefulness and value of corporate reporting,” says Vaessen. “We’re currently working with the International Corporate Governance Network (ICGN) to hold discussions with their members around the future of corporate reporting.”
KPMG’s second annual Survey of Business Reporting is based on analysis of 270 annual reports from larger listed companies, covering 16 countries and 15 non-financial industry super-sectors. The survey looked at the quantitative and qualitative information reported in relation to companies’ business model, strategy, performance and risk.
The views and opinions expressed herein are the personal opinions of the interviewees and authors based on their personal experience working as Auditors in the industry and do not necessarily represent the views or opinions of KPMG International or any KPMG member firm.